The tricky business of measuring a country’s true wealth

Read Story

Article Quotes

Over 80 per cent of humanity’s true wealth is derived from human and natural capital.

Human well-being and wealth are not only determined by economic activity but also by the services we get from nature. Gross Domestic Product measures economic transactions, regardless of whether they are positive or negative for human well-being or a nation’s wealth. It cannot measure the sustainability of economic activities, and it doesn’t capture the contribution of nature to our welfare.

The Inclusive Wealth Index, on the other hand, recognizes that the level of people’s health and education, and the natural resources around them, are key elements determining true wealth. Clean water, fertile land, beautiful landscapes, and thriving oceans have tremendous benefits for human physical, social and psychological well-being. We need to respect and take proper account of these valuable assets.

Developed by UN Environment and UNESCO (the United Nations Scientific and Cultural Organization), Japan’s Kiyushu University and the UN University, the Inclusive Wealth Index is a new way of measuring wealth and well-being across generations. Its comprehensive analysis of a country’s productive base measures all the capital assets from which well-being is derived. These comprise: natural capital, including ecosystems and the services they provide; human capital, incorporating our health and education levels); and manufactured capital such as factories roads and power stations.

The index calculates a country’s inclusive wealth as the social value of all these assets. Steady growth in the index shows that well-being across generations is positive and sustainable.

The index also provides global insights. For example, the 2014 Inclusive Wealth Index found that manufactured capital – for which by far the most data exists – represented only about 18 per cent of the total wealth of nations, compared to human capital at 54 per cent and 28 per cent for natural capital. Yet these two categories are not given the same importance in national accounting systems. It also showed that, of 140 countries assessed, 85 (or about 60 per cent) of them showed positive average growth in inclusive wealth between 1990 and 2010. However, the gains were lower than those measured by Gross Domestic Product.

One lesson is that investments in human capital, especially education, can generate higher growth in inclusive wealth than spending on other asset groups, especially in countries with fast-growing populations.

The Inclusive Wealth approach provides important new perspective for decision-makers in both the public or private sector. It can guide them towards wiser policies and investments that take into account the importance of natural capital, including the risks that further degradation hold for future prosperity. A number of countries are taking this message on board. Canada, which is hosting the main celebrations for World Environment Day on 5 June, is one of the first to have developed its own index.

The index can help us to understand what is happening to our environment and better plan for the future. By 2030, our growing global population will require 40 per cent more water, 50 per cent more food and 40 per cent more energy. Managing ecosystems in ways that preserve or enhance natural capital will be key to meeting this demand.

As a broad and forward-looking measure of economic, social and environmental strength, the index could also help countries to attract international investment. A high index score will also indicate a country’s prospects for meeting the Sustainable Development Goals.

UN Environment and its partners are continuing to develop the Inclusive Wealth Index. Our initial report published in 2012 covered 20 countries. This grew to 140 countries in the 2014 edition, which also benefited from more comprehensive data on human capital. The next edition is due to be published by the end of 2017 and will contain data sets for 190 countries.